The scandal-hit Lakah Group continued its dramatic plunge last week in Cairo, dropping 14.72 percent to close on Thursday at EL1.39.

The company's global depository receipts fell 21 percent during the same period in London to close at US$1.20. Lakah shares have had a fairly solid performance since their market debut in August 1999, but recent rumors about the state of the company's finances, and the position of chairman Ramy Lakah have hit the stock hard.

The Egyptian daily Al Gomhoriyyah last month revealed that Lakah had fled the country to avoid debts of around EL1.5 billion and is now living in Paris. The stock's fall had begun two weeks earlier and by the time Al Gomhoriyyah had broken the story, the company's value had already fallen by nearly 29 percent. Local brokerages HC Securities and EFG-Hermes quickly issued bulletins reassuring investors that Lakah's debts were with a state-owned bank, rather than with major private banks. Significantly there was no effort to shore up Lakah's own crumbling reputation.

Lakah group was formed in 1998, though the company was built on Ramy Lakah's long experience in the health care business. The company's current problems seem to stem from overenthusiastic expansion and diversification in the late 1990s.

Lakah borrowed heavily from banks and on the bond market to invest in steel, construction and the company's core healthcare businesses. The group, perhaps already realizing the pressure these investments were putting on the group as a whole, sold its Arab Steel subsidiary in March this year for EL331 million (US$94.6 million).

The current 'liquidity crisis' means that Lakah Group is now unable to service these debts. Ramy Lakah claims that the Ministries of Health and Education owe him around EL360 million, and that the private sector owes him around EL600 million. His debts with Banque du Caire, one of Egypt's four major state banks, are thought to total around EL830 million.

Yet the Lakah Group was, and should continue to be, a very profitable company. Sales were EL1.227 billion in 1999, with net profits of EL172.1 million, giving a price-to-earnings ratio at the time results were announced (April) of 6.4.

So what will become of Ramy Lakah and his company? Official silence following his flight suggests that he is now negotiating with the government to either cancel or reschedule his debts and then return to Egypt.

It is also rumored that Lakah may be running for parliament in elections in October and November: the ruling National Democratic Party (NDP) has recently sought to attract the support of the business community. Perhaps Ramy Lakah - at least prior to his journey to Paris - is the just kind of man the NDP is looking for. –(Albawaba-MEBG)